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Short  road   to   specie-currency. 


John  Earl  Vi'miams . 


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SHORT   ROAD 


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Specie— Currency. 


SHORT  ROAD 


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Specie— Currency. 


Metropolitan  National  Bank,  ) 
Nkw  York,  May  lltli,  1874.  f 

To  Hon.  John  Sherman, 

Qhalrman  of  Finance  Committee^ 

U.  S.  Senate, 
Dear  Sir  : 

Since  last  November,  when  you  talked  over  with  me, 
here,  the  subject  of  Banking  and  Currency,  my  views,  then 
expressed,  have  been  confirmed  and  strengthened.  Since 
then,  too,  the  ground  has  been  quite  thoroughly  gone  over 
by  both  branches  of  Congress. 

The  recent  veto  of  the  Senate  bill  by  President  Grant, 
brings  up  anew,  however,  the  old  questions  ;  perhaps,  under 
circumstances  more  favorable  for  a  calm  consideration  and 
wise  solution  of  the  whole  matter.  You  know,  sir,  that  in 
the  fire  and  smoke  of  battle,  we  often  lose  sight  of  our 
enemy  ;  so,  in  the  heat  and  excitement  of  debate,  there 
is  danger  that  we  may  lose  sight  of  the  original  cause  of 
existing  differences,  and  consequently,  fail  to  perceive  and 
apply  the  wisest  remedy. 

Will  you  allow  me  now,  to  state  my  mature  convictions 
on  this  all-important  subject?  Take  them  for  what  they 
are  worth,  intrinsically,  not  for  my  sake  ;  and  let  them 
perish,  if  they  do  not  possess  vitality  enough  to  deserve 
favor  in  public  estimation. 

In  the  general  discussion  of  this  subject,  it  has  seemed 
to  me,  that  the  public  and  Congress,  have  been  too  much 
fettered  by  precedent — by  clinging  to  what  has  been — by 
efforts  to  patch  up  old  methods — "  sewing  new  cloth  into 
old  garments,"  instead  of  laying  the  old  garments  on  the 
shelf,  grateful  none  the  less,  for  the  good  they  have  done, 
but  knowing  we  had  outgrown  them — as  the  man  the  boy's 
clothes — and  had  no  further  practical  use  for  them.  This 
we  have  done,  in  establishing  our  own  form  of  Government, 
why  not  do  it  in  reference  to  political  economy  % 

Among  such  useless  antiquities,  may  be  classed,  "the 
Suffolk  Bank   System,"    so  called,  which  was   the  most 


unmitigated  paper-scheme  ever  devised  ;  under  it,  millions  of 
bank  bills  were  redeemed  witliout  using  a  dollar  of  specie  ! 
yet  that  did  good  service  fifty  years  ago,  but  is  of  no  use 
now;  and  an  outgrowth  of  that — ^"  assorting  houses" — still 
talked  of,  for  the  purjDOse  of  separating  the  bills  of  each 
Bank  from  all  others,  to  send  home  for  payiuent  in  other 
paper-promises !  And  most  prominent  of  all,  the  vain 
effort  to  resume  specie  payments  by  Banks,  as  heretofore, 
including  alike  bills  and  deposits,  which  always  has  been, 
and  in  the  nature  of  things,  always  must  be,  sooner  or 
later,  a  failure.  "Free  Banking,"  too,  is  a  catch-word, 
and  a  delusive  snare,  for  it  would  give  too  much  or  too 
little  currency — entirely  de^^endent  on  the  profit  in  making 
it — consequently,  causing  either  perturbation  or  stagnation, 
both  of  which  should  be  avoided. 

All  these  belong  to  the  obsolete,  and  time  will  be  saved 
by  so  considering  them.     Let  them  go. 

As  to  the  cause,  or  causes,  of  the  late  financial  panic,  I 
consider  it  undeniable  and  self-evident,  that  last  September, 
we  touched  bottom  in  our  currency-supiDly.  If  superabund- 
ant ten  years  before,  it  was  proved,  to  a  demonstration,  to  be 
used  up  now.  Various  circumstances,  splendid  railroad 
schemes  and  other  magnificent  projects,  no  doubt,  absorbed 
capital  and  precipitated  the  event.  But  the  simple,  naked 
trutli  remains  undeniable,  neither  for  love,  nor  hard  money, 
itself,  could  more  currency  be  obtained.  There  was  an  abso- 
lute currency-famine,  and  some  starved  !  The  United  States 
had  undertaken  to  supply  the  country  but  failed  to  do  it ; 
after  prohibiting  (wisely  I  tliink,)  the  several  States  from 
authorizing  any  bank  circulation.  Tliis,  and  this  alone,  was 
the  original  cause  and  starting  point  of  the  panic.  Hoard- 
ing, locking  up  in  merchants'  iron  safes,  came  afterwards, 
as  one  of  the  baneful  effects  of  the  fright,  and  it  greatly 
aggravated  the  excitement.  The  banks  manfully  stood  by 
each  other,  and  lessened  the  disastrous  effects  by  the  course 
they  pursued.  Two  or  three  months  elapsed — the  wheels 
of  trade  turned  slowly,  but  surely,  and  tlie  return  of  cur- 
rency from  the  extremes  to  the  money-centres — with  the 
necessary  contraction  of  business  engagements — relieved 
the  pressure  and  restored  confidence.     But  not  until  serious 


o 

consequences  liad  ensued,  which,  with  a  sufficient  supply  of 
currency,  we  miglit  liave  been,  we  should  have  been,  pre- 
sented from. 

The  foregoing,  I  think,  are  among  the  essentials,  and 
non-essentials,  which  have  occupied  much  of  the  time  of 
Congn^ss,  while  it  has  been  feeling  its  way  towards  light  on 
this  important  investigation.  But  time  spent  in  earnest 
thought  is  never  lost.  Especiallj^  if  it  lits  us  to  seek  a 
■principle  on  which  a  system  may  be  reared,  which  shall 
meet  our  present  wants  and  stand  the  strain  of  any  future 
commercial  crisis. 

With  this  view  I  would  suggest : 

1st.  That  Congress  assume,"  at '  once,  the  inherent, 
sovereign  prerogative  of  a  Government  ''  of  the  people,  by 
the  people  and  for  the  people,"  and  exercise  it,  by  furnish- 
ing all  the  inhabitants  of  the  United  States  with  a  uniform 
National  currency  I  Surel}'  the  people,  and  the  people  only, 
have  a  natural  right  to  all  the  advantages,  emolument  or 
income,  that  may  inure  from  the  issue  of  either  one  thousand 
dollar  bonds,  with  interest,  or  ten  dollar  notes  without, 
based  on  the  faith  and  credit  of  the  Nation  !  * 

This  principle,  simple,  clear  and  undeniable,  ought  to  be 
recognized  as  fundamental,  and  the  only  safe  and  proper 
basis,  on  which  may  securely  rest  all  the  circulating  medium 
of  the  country  ;  for  the  sole  benefit  of  all  the  peoj^le, 
and  not,  as  now,  for  the  profit  of  a  class  of  stockholders, 
however  deserving  they  may  be,  in  all  other  respects. 

2d.  To  carry  into  eflfect  this  principle — to  substitute  U. S. 
notes  for  Bank  notes — take  away,  as  soon  as  practicable, 
and  forever,  *all  circulation  from  banks.  Withdraw  National 
Bank  notes,  and  in  lieu  thereof  issue  U.  S.  Coin  Notes  (not 
legal  tenders),  as  fast  as  the  Bank  notes  can  be  returned  to 
the  issue  Department  at  Washington.  Such  substitution, 
w^ould  of  course,  be  neither  contraction  nor  expansion,  but 
merely  putting  one  note  in  circulation  in  place  of  another ; 
consequently,  it  could  cause  no  business  jar  whatever. 

Let  the  United  States  purchase  the  bonds — now  lodged 
in  Washington,  to  secure  the  circulation  of  Banks — at  the 
market  price,   or  at  least  a  sufficient  amount  of  them,  to 

*  N.  B.    It  is  a  significant  fact,  that  within  ten  days,  the  London  Times  has  suggested  the 
same  idea— that  is  that  our  government  furnish  a  ciirrenc}'  for  the  country. 


5177S0 


6 

cover  the  issue  of  notes  b}^  the  United  States  to  the  several 
Banks,  for  payment  of  their  bonds,  to  the  amount  of  Bank 
notes  cancelled - 

And  to  facilitate  the  process,  require  that  at  least  25 
per  cent,  of  the  circulation  of  each  Bank  be  annually  sur- 
rendered for  exchange  and  cancellation. 

3d.  The  new  notes,  and  legal  tenders,  now  outstanding, 
shall  be  redeemed  in  specie,  on  demand,  whenever  presented 
at  the  Assistant  Treasurer's  Office  in  New  York  City.  To 
ensure  which.  Government  shall  accumulate  (and,  if  need 
be,  sell  100  million  five  per  cent,  bonds  to  accomplish  the 
purpose)  at  least  one  hundred  and  fift}^  million  dollars 
in  specie,  in  the  vaults  of  said  Assistant  Treasurer,  and  aim 
to  retain  that,  as  a  minimum  amount,  at  all  times,  to  inspire 
confidence  and  provide  for  contingencies.  Nor  need 
any  difficulty  be  apprehended  on  this  point,  as  California 
yielded  last  year,  up  to  31st  December,  seventy  two  million 
two  hundred  and  fifty-eight  thousand  dollars.  Moreover, 
as  soon  as  the  public  understand  they  can  have  specie  for 
the  asking,  it  will  not  be  wanted.  People  will  prefer  to 
carr}^  U.  S.  notes  in  their  pockets,  as  more  convenient  and 
equally  valuable. 

Neither  could  an}^  one  reasonably  object,  that  the  United 
States  would  be,  b}^  such  an  operation,  banking  or  engaging 
in  business,  for,  properly  regarded,  it  is  as  much  a  function 
of  Government,  as  the  drawing  of  a  Treasury  Draft  on  the 
Assistant  Treasurer,  in  New  York  ;  indeed,  practically,  it 
is  only  that. 

4th.  To  guard  against  undue  issue,  on  the  part  of  the 
United  States,  and  to  provide  in  summer,  when  money  is 
cheap,  for  a  necessary  surplus  of  currency  to  transact  the 
autumn  business.  Congress  should  authorize  the  emission  of 
a  convertible  and  re-convertible  bond,  bearing  3,  4,  or  even 
5  per  cent,  interest.  Said  bonds  to  be  obtained  either  of  the 
Assistant  U.  S.  Treasurer,  in  New  York,  or  of  a  Commis- 
sion, appointed  to  take  charge  of  the  same,  at  the  office  of 
said  Treasurer,  upon  paying  for  them,  in  either  National 
Bank  notes,  legal  tenders,  or  II.  S.  notes.  And  the  bonds 
sliould  be  payable  at  the  office  of  said  Tn^asurer,  with 
accrued  interest,  on  demand,  at  the  o2)tion  of  the  holder. 


The  effect  of  this  emission  of  bonds,  would  be  two-fold  : 
first,  to  check  an}'-  excessive  issue  of  U.  S.  notes,  as  they 
would  at  once  be  taken  to  the  Assistant  Treasurer  and  con- 
verted into  bonds,  thus  placing  such  excess  on  interest,  as  fast 
as  the  notes  became  superabundant  ;  secondly,  these  bonds 
would  take  up  circulation  when  cheap — and  not  wanted  for 
business  purposes — and  keep  it  till  it  was.  Then  the 
bonds  would  be  presented  for  j)ayment  and  the  circulation 
come  out  to  do  its  beneficent  work,  without  disturbing  the 
discount  lines  of  the  Banks,  as  the  operation  would  be 
entirely  independent  of  them.  Indeed  this  machine  would 
act  automatically,  taking  up  or  letting  out  currenc}^, 
according  to  supj)ly  and  demand. 

Should  money  be  abundant  and  cheap,  3  per  cent,  bonds 
would  absorb  the  surplus  ;  but  so  important  is  it  to  accu- 
mulate money  in  July  and  August,  for  September  and 
October,  that  even  5  per  cent,  for  60  or  90  days,  might  w^ell 
be  iDaid,  on  20  or  30  millions,  rather  than  have  no  adequate 
provision  for  the  autumnal  demands  of  trade,  which  come 
round  with  the  regularity  of  the  season. 

5th.  Here,  an  important  question  naturally  arises, 
namely  :  What  amount  of  currency  is  requisite  to  conduct 
the  enlarged  business  of  a  constantly  increasing  population, 
dealing  in  various  commodities  at  enhanced  prices  ? 

This  question  may  be  x>ractically  answered,  although 
mathematical  certainty  ma}'  not  be  attainable.  A  commis- 
sion carefully  selected,  would  be  able  to  reach  a  satisfactory 
result  in  this  particular  ;  and  also  to  approximate  the  per 
centage  of  increase  of  currency  that  would  be  required,  every 
five  or  ten  years,  to  meet  the  growth  in  population  and  busi- 
ness ;  and  thus  escape  the  evil  of  either  deficienc}^  or  excess. 

For  instance,  if  with  a  poj)ulation  in  1861,  of  33  millions 
— and  banks  paying  specie — we  had  a  Bank  note  circula- 
tion of  220  millions — and  specie  in  circulation,  170  millions — 
aggregate,  390  millions — how  much  would  now  be  required 
for  a  population  of  43  millions,  including  demands  for  manu- 
factures, for  mining  the  precious  and  other  metals,  and  for 
railroads,  quadrupled  in  extent  in  thirteen  years  ?  Allow- 
ance being  also  made  for  advance  in  prices  of  from  30  to  50 
per  cent.,  in  nearly  every  article  bought  and  sold. 


8 

This  increase  in  values  is  real  and  not  nominal.  An 
effect  largely  owing  to  an  addition  of  specie  since  1848,  from 
Australia  and  California,  to  the  amount  of  two  thousand 
millions  in  gold  and  sillier  I  The  commercial  exchanges 
of  the  civilized  world  have  thus  been  increased,  making 
gold  and  silver,  and  not  paper,  responsible  for  the  enhanced 
value  of  commodities,  in  all  countries,  even  where  there  has 
been  no  paper  used  as  currency. 

Thus  it  is  seen,  that  no  special  study  of  the  subject  is 
required  to  perceive,  that  double  the  former  volume  of  cur- 
rency, say  780  millions,  would  be  none  too  mucli  for  the 
present  day. 

Nevertheless,  exactness  as  to  amount,  is  less  important 
than  if  the  proposed  U.  S.  notes  were  not  to  be  paid,  on 
demand,  in  specie.  That  fact,  complemented  by  the  con- 
vertible bonds,  would  regulate  tlie  amount  of  the  issue  of 
U.  S.  currency  to  a  nicety  never  before  attained.  Especiall}^, 
as  these  notes  would  not  be  subject  to  the  fluctuations  in- 
cident to  Bank  note  circulation,  for  the  latter  must  always 
be  more  or  less  mixed  up  with  the  Bank's  liability  for 
deposits,  and  dependent  upon  the  availability  of  the  Bank's 
discounted  paper. 

Suppose  then,  for  example,  we  assume  800  millions  as  the 
requisite  amount  of  circulation  to-day. 

The  profits  of  that,  to  the  people,  may  be  thus  stated. 
Deducting  150  millions,  as  amount  of  coin  to  be  kept  on 
hand,  would  leave  a  balance  of  650  millions  net,  to  draw 
interest  as  money.  Tliis  sum  at  6  per  cent,  would  yield  a 
profit  of  39  millions  annually  !  Reducing  the  taxes  of  all 
the  inhabitants,  every  year,  exactly  that  amount,  comj^ared 
with  what  would  be  the  case,  if  that  circulation  were  given 
up  to  Banks. 

6th.  Undoubtedly  there  are  a  few  Banks  that  will  raise 
a  cry  about  vested  rights,  violated  charters,  &c.,  but  it  is 
enough  to  say,  to  such,  that  any  Bank  which  cannot  live 
without  circulation,  must  have  less  of  the  confidence  of  the 
public,  as  evidenced  in  deposits,  and  more  of  the  element 
on  which  wild-cat  banking  subsists,  than  is  compatible  with 
sound  commercial  Bank  management.  The  truth  is,  the 
proposed  change  is  not,  in  fact,  so  much  of  a  sacrifice  of 


9 

profits,  as  at  first  sight,  it  may  seem  to  be.  You  know  that 
Banks  are  now  required  to  hold  five  per  cent,  bonds,  in- 
stead of  six,  as  the  basis  of  their  circulation  ;  the  rate  may, 
probably  will,  be  reduced  to  four  per  cent. 

Then  the  Banks  would  be  relieved  from  all  taxes,  and 
reserves,  on  account  of  their  notes — and  here,  in  New  York, 
these  amount  to  about  three  per  cent,  per  annum.  They 
would  save  the  premium  on  U.  S.  bonds  deposited  in  Wash- 
ington for  circulation.  They  would  escape  the  clamor  of 
newspapers,  and  individuals,  for  resumption  of  payments 
in  specie.  For,  then,  they  would  bank  on  U.  S.  notes  and 
specie,  their  customers  receiving  whichever  they  preferred. 
In  a  word,  they  would  do  a  strictly  legitimate  business  as 
Banks  of  discount  and  deposit ;  knowing,  that  whatever 
leads  to  the  prosperity  of  the  whole  people,  must  be  benefi- 
cial to  the  banks  ;  but  leaving  the  right,  where  it  belongs, 
to  the  U.  S.  Government,  to  supply  the  whole  circulating 
medium  of  the  country. 

While  I  speak  thus  strongly,  for  the  best  interest  of  all, 
as  I  understand  it,  I  beg  to  say,  that  no  one  can  entertain  a 
higher  estimate  of  the  usefulness,  the  integrity  and  the 
honor  of  Bank  managers  than  I  do  ;  and,  no  one,  I  believe, 
knows  them  better. 

Yet,  in  this  connection,  we  must  remember  that  Banks  are 
the  creatures  of  law.  The  laws  which  created  them,  may,  by 
virtue  of  rights  reserved,  be  amended,  altered,  or  repealed. 

If  therefore,  it  is  found,  that,  as  heretofore,  and  as  now, 
constituted,  these  institutions,  with  the  best  intentions  of 
those  who  direct  them,  fail  to  secure  for  the  people  a  satis- 
factory currency  ;  and  that  even  to  attempt  it,  on  the  old 
basis,  would  be  to  lay  themselves  open  to  as  frequent  sus- 
pensions as  Wall  Street  should  choose  to  inflict ;  then, 
surely,  it  is  fitting  and  needful  that  some  better  methods  be 
devised  and  carried  out.  To  those  who  are  disposed  to 
complain  of  the  change  as  a  hardshi}),  one  is  tempted  to  ask 
what  natural  right  a  dozen  stockholders  have  to  receive 
notes  from  Government  to  circulate,  that  any  other  dozen 
men  do  not  posess  ? 

7tli.  Again,  some  may  say,  it  is  true,  we  need  reform, 
but  if  Wall  Street  is  so  powerful,  as  against  Banks,  why 


10 

may  it  not  have  equal  ability  to  cause  Government  to  sus- 
pend ? 

The  reply  to  this  is  plain  and  conclusive.  Tlie  cases  are 
essentially  different.  Whenever  Banks  have  failed,  it  has 
always  been  because  of  the  withdrawal  of  their  deposits, 
and  not  that  a  few  thousand  dollars  were  demanded  for 
their  bills — not  at  all— but  payment  of  deposits  was 
demanded,  amounting,  perhaps,  to  ten  times  their  circula- 
tion, and  hence  the  banks  were  unable  to  respond.  This 
has  invariahly  been  the  cause  of  the  several  Bank  failures. 
How  unwise,  then,  not  to  seek  a  sure  and  sufficient  remedy, 
after  trying  seventy-five  years  to  compass  the  impossible  ! 

Now,  inasmuch  as  the  U.  S.  Government  has  no  deposits^ 
and  its  circulating  notes  would  permeate  every  corner  of 
this  vast  country — doing  the  rightful  w^ork  of  a  National 
currency — therefore,  they  could  not  be  hoarded — even  if 
the  attempt  were  made — in  any  quantity  sufficient  to 
derange  the  regular  business  of  tlie  land.  They  would 
constitute,  so  to  speak,  the  life-blood  of  our  commercial  and 
mercantile  transactions,  circulating  to  the  remotest  parts, 
and  equally  indispensable  at  the  centre  or  the  circumfer- 
ence. And  if,  by  labor  and  sacrifice  of  interest,  a  sum  could 
be  gathered  together,  what  motive  would  exist  to  demand 
specie,  when  the  paper  was  of  equal  value  with  the  coin. 

Another  good  result  would  surely  be  accomplished. 
Speculation  in  gold  would  be  killed  stone-dead  !  and  that 
nuisance  abated,  most  eftectually. 

8tli.  The  proposed  separation  of  circulation  from  Banks 
of  discount  and  deposit,  would  establish  banking  proper,  on 
a  legitimate  basis,  and  transfer  to  the  General  Government, 
where  it  belongs,  the  circulation  of  the  people  for  the  sole 
benefit  of  all.  The  Banks  and  U.  S.  Government,  both 
working  harmoniously,  in  their  several  spheres,  with  no 
clashing  or  rivalry.  Indeed,  circulation  would  then  be 
scarcely  more  divorced  from  ordinary  banking,  than  now  ; 
inasmuch,  as  U.  S.  bonds,  deposited  in  Washington,  dis- 
tant from  the  Banks,  now  compose  the  security  for  the 
notes,  and  it  is  proposed  to  take  the  direct  promise  of  the 
Government  in  the  new  U.  S.  currency. 

This  principle  is  recognized  and  acted  on  by  the 
Bank  of  England.     That  institution  has  cut  off  the  Issue 


11 

from  the  Discount  Department,  almost  as  completely,  as  if 
it  were  another  corporation.  Why  should  not  we  imitate 
England's  example,  but  improve  upon  it,  by  giving  to  our 
forty -three  millions  of  inhabitants  all  the  profits  to  be 
derived  from  a  circulation  throughout  our  country,  instead 
of  sharing  it  with  2,000  Banks,  estimated  to  have  some  three 
hundred  thousand  stockholders  ? 

New  England  States  that  have  a  large  accumulation  of 
surplus  capital,  and  a  plenty  of  National  Bank  currency, 
may  be  indifferent,  or  even  opposed,  to  an  increase  of  cur- 
rency, of  any  kind  ;  but  Massachusetts  and  Rhode  Island 
should  remember,  that  notwithstanding  all  their  abundant 
resources,  yet,  last  September,  their  mill-operatives  were 
among  the  first  to  foresee  danger  and  feel  distress,  on  the 
stoppage  of  the  factories  of  their  wealthiest  manufacturers  ; 
mainly,  because  no  currency  could  be  obtained  to  carry 
them  on  !  Nor  will  they  soon  forget  the  alarm  created  by 
threats  to  run  on  the  Savings  Banks — their  very  riches  and 
careful  savings,  even,  heightened  the  danger  of  a  panic 
among  the  laborers  who  had  savings-deposits. 

This,  and  every  consideration,  should  teach  the  East  to 
look  with  fraternal  feeling  to  the  West  and  the  South,  if  it 
would  aid  in  relieving  a  pressure  arising  from  want  of 
capital  and  currency,  there,  but  which  no  longer  is  felt  at  the 
East !  In  truth,  the  unprecedented  and  irrepressible  growth 
of  the  West,  in  population  and  productive  j)Ower,  indicates, 
also,  an  approaching,  if  not  an  existing,  political  power, 
that  will  soon  speak  to  the  East  in  tones  distinctly  audible. 

And  now,  Mr.  Senator,  only  one  word  more  ;  if  you 
approve,  in  the  main,  of  the  foregoing  suggestions,  will  you 
do  me  the  favor  to  draw  a  bill,  embracing  them,  substan- 
tially, and  advocate  its  passage  in  the  Senate  ?  Providing, 
that  the  law  take  full  effect  on  the  Fourth  of  July,  1876, 
making,  thus,  our  second  and  financial  declaration  of 
Independence ! 

Believe  me,  sir. 

Yours,  with  much  respect, 

J.  E.  WILLIAMS. 


LOS  ANGELES 


HG 
W67s 


y'". 


:^;'-s^  ■■■■ 


,^: 


